SAVINGS, INVESTMENTS & ISAs

THE VALUE OF INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.

TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.

Investments

There are many different types of investment. Below is a list that outlines some of the options that are available on either an individual or corporate basis.

Cash deposits

National savings

Asset backed investment

Shares

Gilt edged securities

Unit trusts

Investment trusts

OEIC’s

Investment Bonds

Enterprise Investment Schemes (EIS)

Venture Capital Trusts (VCT)

Please note VCT’s/EIS’s invest in assets that are high risk and can be difficult to sell such as shares in unlisted companies. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

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Why should I invest?

The reason why people invest is varied. You need to be very clear on your financial goals to decide if you should invest. Specifically, you need to know which of your goals are short-term, and which are long-term.

Short-term goals are things you plan to do within the next five years

Medium-term goals are things you plan to do within the next 5-10 years

Longer-term goals are ones where you’re won’t need the money for ten years or more

For your short-term goals, the rule is to save into cash deposits. The stock market may go up or down in the short term and if you invest for less than five years you might well make a loss.

For longer-term goals, it’s often best to invest because inflation can seriously affect the value of cash savings over the medium and long term. The stock market tends to do better than cash over time. The longer you can leave your money, the more chance you have of making a profit.

For the medium term, cash deposits may sometimes be the best answer, but it depends on how much inflation risk you are willing to take, and whether you need a certain sum on a certain date.

You can adjust the level of risks you take when you invest by spreading your money across different types of investments – called diversifying the risks.

ISAs

ISAs are often the first port of call for investors. Many people are now also switching their cash ISAs to equity based products, due to the low or negative real returns on cash products and the significant returns in the stock market over the last few years.

Here are some fast facts on ISAs:

Interest earned on cash ISA’s is tax free

Dividend income from equity ISA’s are currently taxed at a rate of 10%

There is no capital gains tax on ISAs

Like pensions, ISAs invest in funds

The individual ISA allowance for the current tax year (2018/19) is £20,000 per annum

With interest rates so low, many investors in cash ISAs are experiencing lower returns than they would like.

Equity ISAs offer greater scope for growth; however the value of the investment can go down as well as up, so there is always a risk that you may not get back as much as you put in.

The rules and limits surrounding ISA for the tax year beginning 5.4.2017 has changed and will affect you if you take advantage of the annual ISA allowance.

Investment Calculator

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.